Opportunity analysis of CSA loan products in the Indian MFI portfolio

• Feb 26, 2025
• 2 min

Climate change threatens agriculture, making climate-smart agriculture (CSA) essential. AGRI3 Fund, IDH, and HSBC India launched a $50M MFI lending program to support CSA adoption. MSC conducted a CSA financing analysis, identifying key barriers, enablers, and strategies to help MFIs integrate CSA financing, enabling smallholder farmers to build resilience.

Climate change has a drastic impact on agriculture worldwide. Extreme weather, heat stress, and pests reduce crop yields and increase costs. Climate-smart agriculture (CSA) offers a sustainable solution as it integrates resource-efficient technologies with resilience strategies. The Indian government and institutions, such as the Indian Council of Agricultural Research (ICAR), the National Bank for Agricultural and Rural Development (NABARD), and the International Rice Research Institute (IRRI), promote CSA. Yet, adoption remains slow due to financial and ecosystem barriers. 

Microfinance institutions (MFIs) can play a crucial role in financing CSA adoption with their extensive networks. However, limited awareness, a lack of tailored financial products, and perceived risks hinder MFI investments in CSA. The AGRI3 Fund, IDH, and HSBC India recognized this issue and launched a USD 50-million MFI lending program to support CSA financing, which included partial guarantees. This partnership seeks to help MFIs integrate CSA financing into their portfolios and create a path for smallholder farmers to build climate resilience and maintain agricultural productivity.

As part of this initiative, AGRI3 commissioned MSC to conduct a CSA financing opportunity analysis to help integrate CSA financing into MFIs’ portfolios. MSC conducted a comprehensive landscape study of CSA practices, identified key barriers and enablers for MFI clients’ adoption of CSA practices, assessed financing opportunities, and provided strategic recommendations to help MFIs scale CSA adoption. We undertook the following tasks:

• CSA landscape assessment: We reviewed 100 CSA practices and identified 12 priority solutions, which included drip irrigation, solar pumps, no-till farming, and biodigesters. We identified the priority solutions based on productivity, climate adaptation, and economic feasibility.
• Qualitative demand assessment: We conducted field studies in Bihar, Tamil Nadu, and Uttar Pradesh to understand barriers and enablers to CSA adoption.
• CSA financing opportunities identification: We assessed how MFIs can develop customized financial products to support capital investments in technologies, such as seed drills, solar-powered irrigation, and livestock infrastructure, and provide working capital for sustainable practices, such as bio-input centers, agroforestry, and crop loans.
• MFI readiness and capacity assessment: We evaluated MFIs’ lending structures, internal processes, staff capabilities, and IT systems to determine their ability to finance CSA effectively.

This study helped initiate discussions with five MFIs on the launch of CSA financing and the development of tailored financial products to support climate-smart agriculture. Additionally, it influenced policy and investment decisions and helped create financial solutions that address both the demand and supply sides of CSA technology adoption.

AGRI3 Fund and IDH India commissioned this project.